The various facets of the energy transition

The Economic and Social Council (Conseil économique et social – CES) has just published an opinion on energy transition. The opinion is the result of a joint initiative by the social partners, who wished to share with policymakers their analyses and recommendations on the profound structural changes taking place in energy production and consumption patterns.

For the members of the CES, we must take decisive action against climate change. This means finding alternatives to fossil fuels and replacing them with decarbonized energy sources. This ongoing process ultimately affects almost all human activities.

The CES analyzes and comments on the different types of instruments that can be used to achieve a successful ecological transition: awareness-raising to bring about voluntary changes in behavior, fiscal measures, subsidies, standards, price signals, bans, and so on.

The CES discusses whether these should be voluntary or mandatory, without settling the issue, and believes that the right balance needs to be struck between incentives and prohibitions. An approach based solely on bans risks undermining public acceptance of climate measures. At the same time, an approach based on voluntarism alone ultimately favors those with higher incomes, for whom the price effect of environmental taxes can easily be ignored, while citizens with lower incomes bear the full brunt of these taxes and often don’t even have the opportunity to reduce their carbon footprint for financial reasons.

At the same time, the CES encourages investment in research, development and technological innovation. Without technological progress, the goals of the European Green Deal in particular will be unattainable.

The CES also calls for a reform of the European electricity market to speed up the introduction of decarbonised electricity production at an acceptable price, rather than having to pay an overpriced energy bill for a long time. It discusses dynamic pricing models (different tariffs according to demand, depending on the time of day, in order to avoid bottlenecks), while calling for a social dimension not to be excluded, e.g. in the form of the provision of a moderately priced baseline or even a guaranteed minimum subsistence level.

The CES then analyzes the challenges and opportunities for the various sectors of the Luxembourg economy (agriculture and forestry, crafts, industry, banking, retail trade, road transport of persons and goods).

Another section looks at the impact on employment and vocational training. The CES stresses that the transition to a low-carbon economy will inevitably affect all sectors of the economy. We need to prepare now for the coming changes by adapting guidance and initial training to the new profiles associated with the energy transition (“green jobs”). We also need to identify today the jobs that are likely to disappear and give the employees concerned the opportunity to retrain by guaranteeing access to continuous vocational training.

However, the CES notes that the impact of the energy transition on employment has barely been addressed in national discussions on successive climate plans. In the view of the CES, it is imperative to integrate the employment and training dimension into national climate policies. It must be the subject of negotiation and agreement between the social partners at national, sectoral and company level.

Next, the CES turns its attention to the living environment, and in particular to the essential aspects of housing and mobility.

As long as fiscal incentives, standards and regulations promote measures that are accessible and affordable for all citizens, acceptance should not be compromised.

With regard to housing, the CES recommends, among other things, reintroducing the possibility of interest-free climate loans for low-income households, or providing for full or partial pre-financing of renovation measures for low-income households (“climate third-party payment”), coupled with rapid or even immediate payment of the sums advanced by the State to the companies in charge of the work.

With regard to mobility, the CES advocates the continued development of public transport, in particular by maintaining a high level of investment in railways. The trend in freight transport should be reversed, with rail taking precedence over road transport.

To promote access to alternatives to conventional fuels, the ESC advocates in particular investment in the development of sustainable alternative fuels, the systematic installation of a sufficient number of charging points for electric cars in residential areas, and the introduction of “social leasing” with long-term contracts to help low-income households electrify their personal mobility.

In conclusion, the CES believes that the energy transition cannot be done “against” people. As long as tax incentives, standards and regulations promote measures that are accessible and affordable for all citizens, acceptance should not be compromised. Government intervention must therefore be designed to offset some of the additional costs of the transition at the household level through instruments of social redistribution.

Article published in the December edition of Aktuell